THE FACULTY QUARTERLY

Spring, November 2014

Tackling ethical supply chain risks

Maintaining social and environmental standards as supply-chains stretch to all corners of the globe is a concern for most procurement professionals, none more so than those in the rag trade.

As The Faculty founder Tania Seary outlined in a recent Supply Chain Brain article, how procurement and supply chain professionals in the apparel sector manage this challenge is vital to maintaining brand reputation and protecting their businesses bottom line.

Supply chains risks in a global marketplace

Facing growing pressure to keep costs down for “price tag conscious” consumers since the GFC, many global apparel companies have started shifting supply chains to countries like Bangladesh, Vietnam, India and Myanmar where labour costs are considerably less than the traditional manufacturing hub of China.

The supply chain threats that arise from doing business in these new markets was made devastatingly clear with the tragic Rana Plaza factory collapse in Bangladesh, which killed 1,138 textile workers and injured more than 2,000.

The fact is, issues of exploitation and unethical treatment within the supply chain, even when they occur several layers deep, are not tolerated by socially conscious consumers. For example, The Gap is still recovering from the reputation damage inflicted when child labour was identified in their production line in India.

So what can be done to mitigate these risks? Below Tania outlines three steps to ensure a balance between social responsibility, brand reputation and competitiveness:

1. Talk through the risks

Develop a risk management strategy that identifies the supply chain’s pressure points. This includes undertaking a comprehensive risk analysis, constant monitoring of possible supply chain issues and the development of a mitigation plan to limit or remove the impact of the identified risks. It can seem like a daunting task so focus first on the risks that not only hold the biggest commercial threat but are most likely to occur.

2. Walk the supply chain

Physically and metaphorically, procurement and supply chain teams need to walk their supply chain. Start from the end product and work your way to the origin. Investigate each layer of the supply chain - the suppliers, their facilities, safety standards and working conditions. As you do so, check each factor against your company’s brand and ethical values to ensure they align.

3. Plan for the worst

Once a risk management strategy is in place and the respective mitigation actions follow, consider the impact of your decisions on the local environment, consumers and the economy. While risk management analysis takes a macro approach and considers all the possible risks which could occur, hypothesis planning considers what could potentially occur and possible ramifications if a certain decision is made.

It may seem like hypothetical exercises are not the best use of time, but even thinking it through can help identify weak links in the supply chain.

The issue of ethical sourcing and managing supply chain risks in countries with a history of poor labour conditions recently sparked a discussion on the procurement profession’s online network, Procurious. If you have an opinion or advice please share your thoughts with the group.

To brush up on your supply-chain risk assessment skills get in contact with The Faculty’s Director of Consulting, Kate Nicholl via email (kate.nicholl@thefaculty.com.au)